The Role of Taxes as an Automatic Stabilizer: Evidence from Turkey

Hüseyin Sen () and Ayse Kaya ()
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Hüseyin Sen: Yildirim Beyazit University, Faculty of Political Sciences, Department of Public Finance, Ankara, Turkey
Ayse Kaya: Izmir Kâtip Çelebi University, Faculty of Economics and Administrative Sciences, Department of Public Finance, Izmir, Turkey

Economic Analysis and Policy, 2013, vol. 43, issue 3, 303-313

Abstract: The purpose of this study was to empirically investigate the interactions between various taxes and GDP, and to detect whether taxes function as an automatic stabilizer in Turkey. Firstly, when using a time series unit-root test as proposed by Dickey-Fuller (1979), econometric findings revealed that taxes and level of GDP are not static. Secondly, upon employing cointegration designed by Johansen (1988), it was found that GDP and taxes are cointegrated. Thirdly, the Granger (1969) causality test showed that a uni-directional causality exists among taxes, and the causal relationship is between GDP to SCT, and from VAT and CIT to GDP. On the other hand, there was a bi-directional causality between GDP and PIT. Empirical findings showed that personal income tax is the most effective tax in stabilizing business cycle fluctuations. Corporate income tax is also important.

Keywords: Automatic Stabilizers; Fiscal Policy; Unit-Root Test; Co-Integration Analysis; Engle-Granger Causality Test; Personal Income Tax; Corporate Income Tax; Turkey (search for similar items in EconPapers)
JEL-codes: E62 H24 H61 H62 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (4)

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